“Out Of State” MCA Funder Not Precluded From Entering COJs in New York, Court Rules

In May 2017, Funding Metrics (FM), a small business funding provider, entered a signed Confession of Judgment (COJ) in Westchester County, NY against a California-based customer. The Court issued a judgment a mere five days later.

That should have been the end of it, but on July 26th, the customer hired law firm White & Williams to challenge the judgment’s validity on the basis that New York Business Corporations Law § 1314 limits the circumstances in which a non-resident corporation may bring an action or special proceeding against another non-resident corporation. Neither FM nor the customer were based in New York nor had any connections to New York whatsoever, they alleged, which precludes such a judgment from being entered there. But it’s doubly bad, defendants argued, because the judgment by confession statute in New York is unconstitutional as it waives the defendants’ due process rights.

The Honorable Terry Jane Ruderman was unmoved by the arguments, pointing out that not only was FM registered to do business in New York and claimed to have an office there but that defendants incorrectly relied on § 1314 because a Confession of judgment is not an action, nor a special proceeding.

[…]That statute does not preclude the judgment entered here, entered by confession of judgment. By such a document, a person “agree[s] to the entry of judgment upon the occurrence or nonoccurrence of an event” (see Black’s Law Dictionary [10th ed. 2014]), giving the holder a remedy that does not require proof of the nature of the transaction or allow for interposing defenses (see Soler v_Klimova, 5 AD3d 294 [1st Dept 2004]). Therefore, in entering the judgment, the court does not inquire into the underlying transaction, including with regard to such matters as the home state of the corporate plaintiff.

Moreover, while the Business Corporations Law § 1314 applies to “maintaining actions or special proceedings,” the statute providing for judgments by confession does not require commencement of an action; it clearly states that “a judgment by confession may be entered, without an action, … upon an affidavit executed by the defendant” ( CPLR 3218 [emphasis added]).

Defendants’ constitutionality argument was rejected as “meritless” and all of their other arguments not discussed in the order were explicitly rejected.